Investigative Blogger Cobrapost.com has put up video clippings alleging that the branches of three private banks — HDFC Bank, ICICI Bank, and Axis Bank—were willing to help its reporter launder money, offer lockers to stack cash, and invest these funds in insurance products.

The Board of Managements of these banks are currently investigating the matter and have issued a statement that they are concerned about the allegations and that they have well-defined Know Your Customer (KYC) and Anti- Money Laundering policies in place.

What are the Repercussions of this Money Laundering on Banks and New Banks ?
Do you recall the Demat scam of India in 2005 where multiple fictitious accounts were opened by private and foreign banks led to the RBI imposing penalties on banks ranging between Rs0.5mn and Rs2.5mn ? As a result, then we had seen some slowdown in the branch expansion by banks. However, this time around RBI regulations allow to set up branches in Tier 2 to 6 cities, but still need licenses from RBI in Tier I cities (metro and urban areas).

We think these developments, if they were to be true, could potentially lead to slower growth across private banks’ deposits and businesses as RBI may then direct banks to focus on improving risk management rather than expanding.